Incentive - January 2008 - (Page 30)

A SHOT AT REDEMPTION arbitrary and mostly unrealistic [for details, see “Anatomy of a Broken Program,” at right]. “The dealers feel that the incentive plan the past few years was more of a strongarm tactic than anything else,” Schroer notes. “So improving dealer relations is the most delicate issue Chrysler faces—and that’s a task Nardelli surely will let Jim Press handle.” Anatomy of a Broken Program he announcement at Chrysler’s annual dealers meeting in October to end the controversial bonus program called Volume Performance Allowance (VPA) has made dealers happier than the program itself ever did. VPA has been in place for several years; it replaced per-vehicle allotments that dealers received for marketing and other costs, such as providing fuel fill-ups for new cars. Here’s how VPA worked: Every month, a computer program determined a different unit target for each dealer, with cash bonuses based on how much product was taken from the factory in addition to how many units the dealer sold. So a dealership might get $300 per vehicle for meeting 85 percent of its goal and $500 per vehicle for reaching 100 percent. Some dealers, however, were reportedly getting as much as $700 per vehicle. Many dealers acknowledge that the VPA often caused them to accept more units than they could realistically move, and then sell units late in the month at a loss of several hundred dollars apiece to meet goals that triggered bonuses. One dealer told The Detroit News that “You’re frenetic at the end of the month to win the VPA…You will jump off the second floor to make it. And when you don’t, you lament for days.” Another dealer notes that “the plan is just terrible for smaller dealers.” What’s more, a research report by Northwestern University’s Kellogg School of Business released last May said this: “The company found that when dealers realized they could not meet their monthly goals, their sales efforts plummeted. Dealers waited for the next month—a new target—rather than push cars in a month for which the quota and bonus were out of reach. As a result, Chrysler sales cycled through booms and busts.” For 2008, Chrysler will pay dealers a direct bonus of $200 when the dealer invoices a vehicle, and another $200 when the vehicle sells. Beyond this, it’s not clear whether Chrysler will reinstate the cash allotments that disappeared when VPA began. One carrot that Bob Nardelli will try his hardest to keep dormant is any rebate or other cash- T COMPLETING THE PACKAGE Actually, Nardelli’s poaching of automotiveindustry talent did not begin with Press. He was able to boost dealer confidence just two weeks into his tenure when he lured marketing whiz Deborah Meyer from Lexus to be Chrysler’s CMO. “They took Press and Meyer from the Toyota/Lexus leadership, which was doing the best job in the industry,” says Schroer. “Nardelli helped entice them with the challenge of reviving an American institution and creating their own legacy. It was a coup.” So despite the early funerals that many held for Chrysler, Nardelli just might have achieved enough momentum in the first few months at the helm to successfully turn this hulking ship. “It’s such a different task to engage the entrepreneurs in your system, the dealers, versus regular employees. But the new leadership has already done it,” Schroer says. “Since the dealer meeting, Press and Meyer have been out in the field, repeating, ‘Hey, here we are, and we’re listening to you.’ The dealers feel they’re finally being heard and that changes are coming quickly from that.” As for Nardelli, “He’s a no-nonsense leader who doesn’t try to be liked or be popular,” says Silverstein. “But there is more to business success than efficient operations. Companies need all types of expertise, and the best business leaders know it almost never comes from one person. They check their egos and surround themselves with people whose skills complement theirs.” In the end, “Nardelli can do the hard things that must be done at Chrysler and still become a leader who is trusted, respected and followed,” says Silverstein. “His employees and dealers just have to hear it the right way.” “Wean dealers off cash,” says incentive veteran Arnold Light based customer enticement. “We don’t want to put cash on the hood,” Nardelli told CNBC in early November. “That just leads to a downward spiral.” While Nardelli may have fixed the worst problems with Chrysler’s main incentive program, it still uses cash. So Incentive asked Arnold Light, a 40year industry veteran, to suggest a better solution. “What you have here is a dependence on cash, which becomes more like income and is not really an incentive,” Light says. But he warns, Chrysler’s incentive program has “been cashbased so long, it would be very difficult to do a pure incentive program without a cash portion.” The problem, he says is that the dealers probably see that cash as part of their compensation now. “Having said that,” Light adds, “the new system of paying $200 for every invoice might work—give them a little cash and then excite them with something else. Let me explain: When [a dealer] signs the invoice they get $200. But, another $200 credit to an online reward account is available, but is not validated until the vehicle is sold.” That $200 credit can be used immediately or saved combined with others to redeem merchandise from an online catalog, Light says. “LCD televisions, Bose [sound systems], high-end stuff starting at $200 and up. In this manner, the cash portion is intact, and the real incentive happens when the vehicle is sold. The dealer would also have the option of letting salespeople in the dealership pick items in the reward catalog.” This is an interim step, however. “Hopefully, the dealers can be weaned” off the cash altogether, Light adds, suggesting that, “next year, it goes to $100 [cash] and $300 [merchandise].” 30 | Incentive | January 2008 | incentivemag.com http://incentivemag.com

Table of Contents Feed for the Digital Edition of Incentive - January 2008

Incentive - January 2008 Contents Editor’s Note: Out of SITE In The News Cover Story: Include a Meeting, Improve Morale Case Study: DHL Delivers Recognition Incentive Primer: How To Use Promo Products How Bob Nardelli Rallied Chrysler’s Dealers Incentive Interview: Ken Blanchard Says Be Nice TV’s Extreme Makeover Motivates Giving Pre-Employment Motivation The Daycare Dilemma Happy Employees Shouldn’t Mix with Sick Employees Incentive Research: Consumer Promotions Report In Her Shoes: Winning Approval Of Flextime Travel News Field Report: Barcelona Field Report: Bermuda Golf: Follow The Pros potentials Here and Now Watches As Jewelry Awards: Online Gift Cards Tech Gadgets for 2008 Last Word: Stanley Bing Bashes Bully Bosses

Incentive - January 2008

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